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Cuts in Apple's iPhone supply chain spark worries

Strategic Sourceror on
Tuesday, December 18, 2012

Many investors are worried about their Apple stock after the company's cuts in its enormous supply chain prompted analysts to lower their expectations. A recent Forbes article referenced a report from OTR Global, which estimates that the company's iPhone 5 will not manage to hit Apple's sales expectations. This could call for better spend management techniques within the company, as well as more accurate estimates to avoid future production cuts and the subsequent investor panic that may follow.

Apple has made production cuts in its Asian supply chain in light of lower-than-expected sales of both the latest iPhone and iPad. Forbes reported that UBS analyst Steve Milunovich cut his estimates for the company and reduced his target from $780 to $700.

His reasoning for those actions largely rests on the cuts Apple recently implemented. Supply chain checks predict the rate of production for iPhones has fallen compared to other releases, and Milunovich claimed that his Chinese sources do not anticipate the iPhone 5 will have the same runaway success as its predecessor, the iPhone 4S. He also voiced concerns about the iPad Mini and its impact on the original iPad and the company's growth estimates in the current global financial situation.

Not all worried about the supply chain However, some think the cuts have been blown out of proportion and are nothing more than speculation. Speaking about the cuts and subsequent investor warnings, Topeka Capital Markets analyst Brian White declared "the doomsday scenarios painted over the past week are inaccurate."

White claimed Apple's cuts in production should come as no surprise, as the popularity of the company's products is evident in their continued success with consumers. He also noted that yield issues have required Apple to cut their rates of material procurement, potentially causing some of the production cuts.

He also made the point that the latest iPhone's availability worldwide is more impressive than the release of the previous model, the iPhone 4S. White revealed that Apple is scheduled to have the latest device available in 101 countries during the first 91 days of its release, a larger number than the 92 countries in which the iPhone 4S was available in the same time frame.

It remains to be seen how these procurement and production cuts will impact Apple's global supply chain and affect availability and consumer demand in the coming months.

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